Home > Uncategorized > Economics for the 21st century

Economics for the 21st century

from Lars Syll

1. Change the goal: from GDP growth to the Doughnut.

For over half a century, economists have fixated on GDP as the first measure of economic progress, but GDP is a false goal waiting to be ousted. The 21st century calls for a far more ambitious and global economic goal: meeting the needs of all within the means of the planet. Draw that goal on the page and – odd though it sounds – it comes out looking like a doughnut …

raworth2. See the big picture: from self-contained market to embedded economy.

Exactly 70 years ago in April 1947, an ambitious band of economists crafted a neoliberal story of the economy and, since Thatcher and Reagan came to power in the 1980s, it has dominated the international stage. Its narrative about the efficiency of the market, the incompetence of the state, the domesticity of the household and the tragedy of the commons, has helped to push many societies towards social and ecological collapse. It’s time to write a new economic story fit for this century – one that sees the economy’s dependence upon society and the living world …

3. Nurture human nature: from rational economic man to social adaptable humans.

The character at the heart of 20th century economics—‘rational economic man’—presents a pitiful portrait of humanity: he stands alone, with money in his hand, a calculator in his head, ego in his heart, and nature at his feet. Worse, when we are told that he is like us, we actually start to become more like him, to the detriment of our communities and the planet. But human nature is far richer than this, as emerging sketches of our new self-portrait reveal: we are reciprocating, interdependent, approximating people deeply embedded within the living world … 

4. Get savvy with systems: from mechanical equilibrium to dynamic complexity.

Economics has long suffered from physics envy: awed by the genius of Isaac Newton and his insights into the physical laws of motion, 19th century economists became fixated on discovering economic laws of motion. But these simply don’t exist: they are mere models, just like the theory of market equilibrium which blinded economists to the looming financial crash of 2008. That’s why 21st-century economists embrace complexity and evolutionary thinking instead …

5. Design to distribute: from ‘growth will even it up again’ to distributive by design.

In the 20th century economic theory whispered a powerful message when it comes to inequality: it has to get worse before it can get better, and growth will eventually even things up. But extreme inequality, as it turns out, is not an economic law or necessity: it is a design failure. Twenty-first century economists recognize that there are many ways to design economies to be far more distributive of value among those who help to generate it …

6. Create to regenerate: from ‘growth will clean it up again’ to regenerative by design.

Economic theory has long portrayed a clean environment as a luxury good, affordable only for the well-off—a view that says that pollution has to increase before it can decline, and (guess what), growth will eventually clean it up. But as with inequality there is no such economic law: environmental degradation is the result of degenerative industrial design …

7. Be Agnostic about Growth: from growth-addicted to growth-agnostic.

To the alarm of governments and financiers, forecasts for GDP growth in many high-income countries are flat-lining, opening up a crisis in growth-based economics. Mainstream economics views endless GDP growth as a must, but nothing in nature grows forever, and the economic attempt to buck that trend is raising tough questions in high-income but low-growth countries. That’s because today we have economies that need to grow, whether or not they make us thrive. What we need are economies that make us thrive, whether or not they grow.

  1. Econoclast
    June 13, 2018 at 1:10 am

    She’s got a great metaphor here. It doesn’t hurt that she’s articulate and telegenic: https://www.youtube.com/watch?v=Rhcrbcg8HBw. The ensuing debate about this book, this metaphor, her ideas, is rich and should penetrate every community.

  2. Frank Salter
    June 13, 2018 at 7:24 am

    Item 4 above is simply wrong in its asserting that there are only models of economic reality!

    My paper, “Transient Development” — RWER 81. pp. 136−167, demonstrates the falsity of such a claim. At present, to the best of my knowledge, this is the only economics paper which is derived from a first principles analysis. It will not remain alone. I am already working on further papers with analyses from first principles.

    On the blog’s final paragraph:
    From Solow (A contribution to the theory of economic growth, 1956) on, neoclassical models assume that growth is exponential. It is not derived through analysis. simply assumed! I take the lack of such growth as another counterexample which invalidates neoclassical analysis.

    • June 13, 2018 at 10:24 am

      Item 4 doesn’t claim there are ONLY models of reality: it says economic laws are! And of course, the economy is ALSO a model of itself. As Frank has a draft of my derivation of the economic system from first principles, it would seem he doesn’t consider that an “economics paper”. No hard feelings, Frank; it’s just a pity. You might have learned something new by taking it seriously and studying it. Likewise by reflecting on small (%) increments of growth approximating the logarithm, the antilog of which is exponential growth. That’s not economic analysis, it is maths.

      • Frank Salter
        June 13, 2018 at 12:03 pm

        Dave, dealing only in the context of the current blog, I was actually pointing out that the generality of the statement which was made was false to fact — that my paper is, to the best of my knowledge, the only paper which is model free! That is, the remainder are model based.

        As John Robinson pointed out a 1:1 scale map is not useful.

        I take it that you are unfamiliar with the growth literature. Jones [2016] shows empirical data to c.2000AD consistent with exponential growth. Solow [1956], Romer [1990], Mankiw et all [1992] etc, theoretical models assume exponential growth. It is not an emergent property of the analysis.

        I am aware of the relationship between the logarithmic and exponential functions.

        References:
        Jones C. I. [2016] The Facts of Economic Growth, Handbook of Macroeconomics
        Mankiw et all [1992] A CONTRIBUTION TO THE EMPIRICS OF ECONOMIC GROWTH, The Quarterly Journal of Economics
        Romer P. M. [1990] Endogenous Technological Change, Journal of Political Economy

      • June 13, 2018 at 3:16 pm

        I don’t need Jones to tell me about exponential growth. I can see it in the sixty years of my own bank statements. Again, by way of contrast, I see exponential growth as an emergent property of the SYNTHESIS between the economic system and our man-made monetary control systems with percentage markups (e.g. interest rates) built in. Economic thought itself emerged from the behaviour of the birds and the bees.

    • Rob Reno
      June 15, 2018 at 5:57 am

      [M]y paper is, to the best of my knowledge, the only paper which is model free! ~ Frank Salter

      I look forward to learning any day of your Nobel Prize Frank! To the best of everyone’s knowledge you are the only economist to invent model free economics! Perhaps you can share the Nobel Prize with Shiozawa, that is if your egos can fit on the same prize podium ;-)

      • Frank Salter
        June 15, 2018 at 6:51 am

        Thanks for your well-wishing.
        You continue to assert that my analysis introduces some form of model. If it does, why do you not show the world what that model is?
        If you discuss that subject with physical scientists, you will find they understand the difference between first principles analysis and mathematical models. First principles analysis is common in the physical sciences — about two million papers containing those words — about two thousand in economics, where it is generally used only as a rhetorical device.
        If economics is to become genuinely scientific. it will need to get used to the idea — it is part of critical analysis.

      • Frank Salter
        June 16, 2018 at 6:43 am

        Apparently Rob Reno has not found a model.

      • Frank Salter
        June 17, 2018 at 6:31 am

        … and still no model!

      • Frank Salter
        June 18, 2018 at 6:24 am

        … The silence is deafening …

  3. June 13, 2018 at 11:27 am

    I especially like Item 4. Economies are graphs, study them as graphs!

    A market is not an equilibrium regulator like a steam engine governor. It’s a place for setting up links between suppliers and consumers, or creating new edges in the graph.

    • Frank Salter
      June 13, 2018 at 12:18 pm

      I am in total agreement with the sentiment you express.

      However, the statement “economists embrace complexity and evolutionary thinking instead …” merely continues the curve fitting nature of conventional analysis. It is only descriptive! It is not theoretical in any way! Valid theoretical analyses will demonstrate that the real emergent properties arise naturally and are NOT some hypothesised equation shoehorned into conforming with some empirical data. Time is a necessary parameter, not merely a method of splitting data into similar sized groups.

  4. Mark Johnson
    June 13, 2018 at 1:45 pm

    Brilliant. Clear, concise, correct.

  5. Rob Reno
    June 15, 2018 at 5:50 am

    Good book. Enjoyed reading it.

  6. Jamie Morgan
    June 16, 2018 at 12:40 pm

    The strength of the book is originality by synthesis – bringing together many good ideas to attempt to shift economics to a more constructive frame of reference underpinned by the most fundamental issue – the book itself has several problems as a construct (it glosses over some problems of method and complexity and theory construction and agnosticism regarding growth is a difficult issue) but perhaps it might be better to be supportive of the general intent and recognise that the book is one way to set in motion something that urgently needs to occur. If nothing else one should admire its optimism

    • Craig
      June 16, 2018 at 6:48 pm

      Theoretically the book is fine. However, like every other heterodox theory it falls far short on policy applications that are direct, immediate, thorough and effective.

  7. Helen Sakho
    June 17, 2018 at 2:21 am

    I would only add to the original posting above an 8th metaphor for Economists of this century:

    Money does grow on dead trees.

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